India's Move To Expand Local Firms' Role in Defense Falters

Jun. 5, 2013 - 06:51PM
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NEW DELHI — Two Indian companies have declined to participate in a US $1 billion tender to supply quick reaction surface-to-air missiles (QRSAMs), dealing a setback to efforts to expand domestic involvement in big-ticket defense projects.

Defence Ministry sources said the domestic companies do not have the necessary technical know-how to team with overseas companies.

An executive with Indian company Punj Lloyd said the firm tried negotiations with overseas companies but found the project commercially unviable. The executive refused to give details.

Although it is the country’s primary defense electronics manufacturer, Bharat Electronics Ltd. (BEL) has no experience with QRSAM systems and did not enter the competition.

BEL officials declined to discuss the subject, but MoD sources said BEL had not filed papers for the tender.

The QRSAM tender was given in January to Russia’s Rosoboronexport, US company Raytheon, Israel’s Israel Aerospace Industries and Rafael, Tetraedr of Belarus, South Korea’s Doosan Group and LIG Nex1, France-based Thales and Eurosam, Diehl Defence of Germany and pan-European MBDA, in addition to BEL and Punj Lloyd.

Following a helicopter scandal involving Italy’s AgustaWestland this year, the MoD decided to encourage participation by domestic companies in defense projects.

Last month, domestic companies for the first time were asked to participate along with foreign companies in a $1.6 billion air defense program involving integrated gun and missile systems for the Indian Army.

The domestic companies that were invited had never developed such a system, and only by teaming with major overseas defense contractors would these companies be able to meet the Army requirements.

Bidding for QRSAM

The MoD in January floated the tender for the purchase 54 QRSAM systems along with 1,485 missiles on a “buy global” basis.

The QRSAM systems will be used by the Army and will include combat vehicles, transport loading systems, missile-guiding radars, surveillance radars and repair vehicles. The successful vendor will have to transfer technology for the maintenance of the systems.

The Army requires that the QRSAM be able to attack targets at a range of up to 30 kilometers and a height of at least six kilometers.

Some analysts here said involvement by domestic defense companies in these kind of tenders will help build their capabilities, but others said India’s domestic defense industry is still in its infancy and needs time to mature before participating in big-ticket projects.

Asking domestic companies to participate in large projects will encourage collaboration with foreign companies, thus strengthening partnerships, said K.V. Kuber of Sugosha Consultancy Services, based here.

However, local analyst Nitin Mehta said, “The government will have to increase the limit of foreign direct investment [allowed by law] from the current level of 26 percent to around 50 percent to enable big-ticket overseas companies to tie up with domestic defense companies.”